Consumers lead slowdown in Q1 economic growth

The U.S. economy slowed in the first quarter of 2018, driven to a large extent by a big slowdown in consumer spending.

The results confirm a post-holiday return to less robust consumer spending (more here) and raise some concern about the outlook—even if market analysts discount the overall economic letup as temporary,

Topline GDP. Total inflation-adjusted (i.e., real) GDP slowed to a 2.3% annualized (quarter-to-quarter) growth rate in the first quarter from 2.9% in the fourth quarter. A slowdown was evident across all the major sectors of the economy, including business investment when an inventory buildup is excluded.

Consumer spending. Inflation-adjusted consumer spending slowed to 1.1% quarter-to-quarter growth, down from 4.9% growth the prior quarter. The slowdown is less dramatic when growth is measured on a year-to-year basis.

Business spending. Gross business investment (including inventories) accelerated in the first quarter (+7.3%). That growth is less robust excluding inventory buildups (+4.6%), but a slowdown might have been expected given very strong prior-quarter growth. A continued slowdown in investment growth, however, would be an ominous sign for future economic growth.

Outlook. The signs from the first-quarter suggest a mixed outlook for the economy. Growth will depend on persisting business investment if consumers remain on a path of less robust spending, which appears to be the case given the trends in consumer confidence to spend (more here on confidence).